The Financial Responsibilities of a Buy to Let Landlord

Financial Responsibilites of a Buy To Let Landlord


If you’re thinking of becoming a buy to let landlord or renting out your home, you need to be aware of your financial and legal responsibilities. There are several obligations you’ll need to consider – from tax implications & national insurance to protecting tenants’ deposits & buildings insurance.

Mortgage Type

If you’re buying a property with the sole intention of renting it out, you’ll need a buy to let mortgage. If you have a residential mortgage and have chosen to let your home out, you’ll need to inform your mortgage lender. This will usually result in a nominal fee, which will be added to the end of your mortgage. If the rental arrangement goes beyond the term of your residential contract you’ll need to switch to a buy to let mortgage.

Buildings Insurance

It is essential to have the correct buildings insurance in order to comply with the mortgage requirements. It’s also strongly recommended that the insurance includes liability cover, which often comes as standard with landlord policies. This will provide you with protection should your tenant or a visitor make an injury or damage claim against you.
You may wish to consider add-ons such as; legal expenses insurance, loss of rent insurance, contents insurance, unoccupied property insurance, emergency cover etc.
Informing your insurance company every time a tenancy changes is important, otherwise the policy may be void.
Buying buildings and contents insurance together is usually cheaper. If you have a property portfolio, it’s usually financially beneficial to get all the cover from one insurer too.

Income Tax

Income gained through property rental must be declared in a self-assessment tax return each year. You may pay tax on the profit, once the allowable expenses have been deducted. Expenses such as maintenance costs, mortgage interest, letting agency fees, accountancy fees and marketing of the property can be claimed to offset your tax bill.

Capital Gains Tax

Any property that you sell that isn’t your main home you’ll need to pay Capital Gains Tax on the profit made. Again, capital expenditure like renovations or replacing windows can be used to offset the amount of tax you pay. As the sale of the property may be many years after the work has taken place, it’s important to keep a record of such expenditure so you can claim it back.

Class 2 National Insurance

If the profit you make from renting out property totals over £5,965 per year and the work you do could be counted as running a business i.e. being a landlord is your main job, you rent out more than one property or you’re buying new properties to rent out, you will need to pay Class 2 National Insurance. If your profits are under £5,965 you may wish to pay voluntary Class 2 National Insurance. This will help to ensure you get your full State Pension.

Tenant’s Deposit

You are legally obligated to put your tenant’s deposit in a Government approved scheme. This must be done within 30 days from the start of the tenancy agreement. The scheme ensures that tenants will get their deposit back providing they meet the terms of the tenancy agreement, don’t damage the property and pay all of the rent & bills that are due.
At the end of the tenancy, once you have agreed how much the tenant will get back, you must return the amount within 10 days.

For more information about buy to let mortgages, please call our financial advisors on 02392 822 616.

Information correct at time of posting – January 2018.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The value of investments and pensions and the income they produce can fall as well as rise.
You may get back less than you invested.


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